New duty to support growth should not allow regulators to block “risky business models”

A proposed statutory duty on frontline regulators to consider economic growth must not be used to probe the business plans of new entrants to the market or block “risky business models”, the Legal Services Board has cautioned.

Responding positively to a government consultation on forcing ‘non-economic’ regulators to factor growth into their regimes, the board also warned that the duty must not hinder regulators’ powers to take action against businesses that needed to be shut down.

If the duty is adopted – according to the Department for Business Innovation and Skills (BIS) – the combined efforts of more than 50 regulators could help promote economic growth through “proportionate regulatory activity” while avoiding “compromising public protection”.

In a letter from LSB chief executive Chris Kenny backing the move in principle, he highlighted the anomaly that only the LSB and the Solicitors Regulation Authority (SRA) were named in the BIS document as representing legal services. He advised that the list should include the nine other legal regulators and preferably involve an amendment to the Legal Services Act 2007, because it would “aid transparency” and make the duty more effective.

The LSB’s own responsibility for putting the duty into practice would come “when considering whether to approve changes to the regulators’ various codes and handbooks”, as well as when deciding whether to accept new regulators and licensing authorities, said Mr Kenny.

He added that BIS should make clear what “growth” means and how regulators should balance the duty against their other statutory duties. He noted that the legal services regulators “still do not necessarily have the type of data that would easily lend itself to analysis of an impact on growth”.

It was “essential” that a duty to have regard to growth must not obstruct regulators when they had to act in relation to individuals or businesses – either to close down existing businesses or approve new ones, he said.

The LSB viewed the duty as a “useful regulatory tool” that could ensure that authorisation processes and supervision requirements were not “disproportionately onerous”. But Mr Kenny warned: “It will be equally important to ensure that regulators do not interpret the duty as a requirement to scrutinise new entrants’ business plans to try to identify precise ‘growth’ impacts, or use it to prevent entry of more risky types of business model that may not succeed.”

The SRA last month accused the LSB of aligning its own economic liberalisation agenda too closely with that of the government – which the board rejected. Further, the LSB hit back earlier this month with the suggestion that frontline regulators were “uncomfortable with the language of competition” and failing to examine the impact of regulation on the market.

The BIS consultation, which closed on 19 April, urged that in the face of “the biggest economic crisis in history” it was vital that UK regulators “take account of the economic consequences of their actions through a primary legislative duty”.

Legal Futures Blog

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